Yili signs agreement with Dairy Farmers of America

Inner Mongolia Yili Industrial Group — China's second-largest dairy producer by revenue — has signed a strategic cooperation agreement with Dairy Farmers of America Inc, news website Netease.com reported.

Dairy Farmers of America is a United States-based milk marketing cooperative, which represents about 30 percent of the US' raw milk producers.

Calls to Yili's public relations department went unanswered on Wednesday.

The Missouri-based DFA is owned by and serves nearly 13,000 dairy producers in 48 states. It buys raw milk from its members and sells milk and related products to wholesale buyers. The cooperative's net income increased more than 100 percent year-on-year to $83 million in 2012, according to its website.

"It's a win-win cooperation agreement, the DFA can use the Yili brand to enter the Chinese market, and at the same time, Yili will get a chance to improve its branding and technology," said Jian Aihua, a researcher with CIConsulting, an industry research organization. "In addition, the DFA is rich in milk, which doesn't rule out the possibility of a future agreement that will strengthen Yili's capability of getting raw milk."

The agreement follows a series of deals in China's dairy industry.

Last month, China Mengniu Dairy Co, the country's largest dairy producer, said it had offered to acquire a 75 percent stake in domestic baby formula maker Yashili International Holdings Ltd for $1.6 billion, in a bid to boost its presence in the country's dairy industry.

The acquisition would be the largest single deal in the domestic dairy industry.

Meanwhile, Groupe Danone SA has recently invested in two joint projects with Mengniu, a move that will help to improve the French food giant's sliding market share in China.

And three months ago, to secure the quality and safety of its milk supply, Mengniu announced plans to pay HK$3.18 billion ($410.06 million) to take a controlling stake in China Modern Dairy Holding Ltd, the country's largest raw milk producer, which owns 22 dairy farms nationwide.

"Chinese investments in world-renowned dairy production firms are a hot topic in recent years, as the Chinese firms are attracted by their relatively cheap and better quality raw milk," said Lao Bing, general manager of the Shanghai-based Mental Marketing Dairy Consulting.

Last year, Yili said it had spent $214 million to build an infant formula plant in South Canterbury, New Zealand, in a deal that will see it take over Oceania Dairy Group.

According to IBISWorld Inc, a US-based market research company, China is currently the third-largest dairy producer in the world, after India and the US. Last year, the revenue of China's dairy industry grew at an annualized rate of 14.6 percent to reach $43.3 billion.